commit a9aca2

Commit `a9aca2`

2025-06-13 13:01:07 Viraj Alankar: -/-

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`finance/investing.md` ..
@@ 111,11 111,13 @@
	```

	Notional Exposure includes:
-	- Total value of all equities (stocks, options)
+	- Total value of all equities
+	- Options notional exposure
	- Futures notional exposure

	Portfolio Equity includes:
-	- Total value of all equities (stocks, options)
+	- Total value of all equities
+	- Options value
	- Cash
	- Margin balance (negative)
	- Futures profit (positive) or loss (negative)
@@ 126,6 128,19 @@
	\text{Leverage Ratio} = \frac{130000}{130000 - 30000} = 1.3
	```

+	#### Notional exposure vs value
+
+	##### Options
+
+	The numerator of the leverage ratio should include the notional exposures of options. There are different ways of calculating this. A simple way is to use the delta notional exposure:
+
+	```math
+	\text{Delta Notional Exposure} = \text{Delta} \times \text{Strike} \times \text{Contracts} \times \text{Multiplier}
+	```
+
+
+	The denominator should include the market value of options, i.e. the the value of options contract itself.
+
	### Margin loan

	When you have stocks, brokers will let you take a margin loan of at least 50% or more of your equity value. This gives you at least 1.5 leverage, at the cost of margin loan interest, which is usually terrible at most brokerages. For example, Schwab will charge you 13% interest as of today (June 2025). If you cannot make more than 13% on the investments you do with leverage, you won't even break even. Interactive Brokers will give you a much better rate, for example 5%. This is an easier number to beat on investment return.

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